Student Loans Mythbusting

The truth about uni fees, loans & grants

Ignore newspaper headlines about students leaving university with £50,000 of debt. That's a mostly meaningless figure. What counts is how much you'll repay; for some that's far more, for others it's free.

This guide is written to bust common myths about student loans, grants and finance, including the 20+ key facts every potential student, parent and grandparent should know.

For around a quarter of a century, we've educated our youth into debt when they go to university, but never about debt.

It was for this reason, and while no fan of them, when massive changes were announced to student finance for those starting in 2012 or beyond – including the trebling of tuition fees – I agreed to head up a student finance taskforce. The idea was to work with the National Union of Students, universities and colleges to ensure we busted the myths and misunderstandings that resulted from so much political spittle-flying.

For me what really counts is that no student is wrongly put off going to university thinking they can't afford it. Some may rightly be put off, but unless you understand the true cost, how can you decide? I hope this guide helps achieve that.

Thankfully, since then, we've also won a separate campaign to get financial education on the senior school National Curriculum in England. Yet it'll be a long time before that truly pays dividends – so there's still a lot of nonsense spoken about student loans.

Don't confuse the cost and the price tag

With headlines shouting about £50,000 student debt and that getting bigger as living loans increased in 2017, it's safe to say many students and parents are scared by this huge sum – and worry about how they'll ever repay it.

But in essence that fear is misplaced. That's because the price tag of university is mostly irrelevant. What matters in practical terms is how much you have to repay – and that's a completely separate number from the total amount of tuition fees, maintenance loan and interest, because it all depends on what you would pay.

What you repay solely depends on what you earn after university. In effect this is, financially at least, a 'no win, no fee' education. Those who earn a lot after graduating or leaving university will repay a lot. Those who don't gain too much financially from going to university will repay little or nothing.

Many parents aren’t aware that they are expected to pick up the slack, which can seriously impact their finances, especially if they’ve more than one child at university. For that reason, parents should start saving early to ensure they can manage the extra costs.

If you already have a higher education qualification you're unlikely to be able to borrow the money. Included within undergraduate courses are Higher National Diploma/Certificate courses and certain teacher training courses such as the PGCE.

From academic year 2017/18, student nurses no longer receive grants and have to apply for student loans, which the Government says means they'll get more to live on than they'd get through the grants system.

The amount nursing students will get depends on whether they live inside or outside London and whether they are living at home.

Nurses who have already started their studies will continue to get grants.

When nurses leave their studies and start to repay their loans, it will be under the normal loan repayment system described in this guide, meaning they will repay 9% of everything they earn above £25,725. The starting salary for a nurse is £22,128, so in the first year they won't pay anything towards their student loan.

Muslim students in England are set to be able to get alternative student finance acceptable under Sharia, although there is no news on when this will be made available. We'll update the guide as soon as we know more.

You repay 9% of everything earned above £25,725 – earn less and you don't repay

Once you leave university, you only repay when you're earning above £2,144 a month (equivalent to £25,725 a year) and then it's fixed at 9% of everything you earn above that.

Earnings mean any money from employment or self employment and in some cases earnings from investment and savings.

Even if you've started repaying the loan, but then lose your job or take a pay cut, your repayments drop accordingly. To labour the point somewhat:

If you earn £27,000 in a year, what do you repay?

The answer is £115, as £27,000 is £1,275 above the threshold and 9% of £1,275 is £115.

And if you earn £35,000, what do you repay?

The answer is £835. £35,000 is £9,275 above the threshold and 9% of that is £835.

'How on earth will my child be able to afford to repay these debts if they get a poorly-paying job?'

This panicked question has been thrown at me by many parents – and it's really important to examine it in the light of the required repayments.

Someone on a low wage will be required to repay little or nothing at all. In fact, only higher earners will be shelling out large amounts.

It's important to note that not repaying much because you're just over the threshold isn't being bad. The system is, in reality, a graduate contribution, designed so that, in the main, those who gain the most financially out of university contribute the most.

You only have to pay back your student loan if you earn over the earnings threshold in a tax year. Yet most payrolls work on a monthly basis. So the £25,725 threshold is seen as £500 per week or £2,144 a month.

If you earned over that in a month, such as for a bonus, you could’ve had the money taken off you. Or if you stopped work half way through the year, money could’ve been taken off you, even though in total you earned under £25,725 in the year.

If that’s happened to you, you may be due money back. Yet if you earned over £25,725 in a year, but due to irregular income too much was taken from you (eg you earned £27,000 but had more than £115 taken) you can’t claim this back, as once you earn over £25,725 your repayments are paid at everything you earn on £2,144/month.

If you have additional income of over £2,000 from savings interest, pensions or shares and dividends, this will also be treated as part of your income for repayment purposes. You'll need to repay 9% of that too via self-assessment.

The answer is yes. The student loan has been set up as a contract, not a tax; therefore, the fact that you're no longer living in the UK doesn't affect that contract.

The rules state you're still obliged to repay 9% of all earnings above the local equivalent of £25,725 a year. Not doing so could lead to substantial penalties. And this local equivalent isn't just a currency translation, it factors in the cost of living in your country, so it can be radically different.

If we ignore the moral obligation to repay the state for the education it provided you, the real question here isn't "Do I have to?" but "How can they make me?"

This is an issue of enforcement. Certainly if you temporarily leave the UK and come back having missed some payments, expect to be pursued. If you move abroad permanently, never to return, there may be no attempt to pursue you in a foreign court. But there are no guarantees of that.

What's more, the Government has said it will chase people who move abroad more thoroughly than it has in the past – through 'sanctions' and prosecution. We'll update this guide when more on this becomes available.

Some further information on this for current graduates (likely to be similar for future graduates) is available on the Student Loans Company website, though it's a bit sketchy in parts.

Whether student loan repayments are taken from your salary before or after you make a pension contribution depends on how you contribute, and what sort of scheme you're in.

Defined benefit schemes. If you're in an employer's pension scheme, eg, final salary/average salary, your student loan repayments will depend on how the scheme's administered.

You pay student loan repayments on the same income that your employer pays national insurance contributions on. So, if your pension contributions lower this figure, then that's the one assessed for student loan repayments.

However, some defined benefit schemes take the pension payment pre-tax, but after national insurance. In which case, you'll have slightly higher student loan contributions.

Defined contribution schemes(this is what most people now have). If you pay in to a personal pension, whether monthly via your company payroll or directly as a lump sum, student loan contributions are worked out using your gross pay (unless you pay in to your pension by salary sacrifice).

You can do a self-assessment tax return to have the pension contributions taken into account. But decide if it's worth the hassle of going self-assessment if you don't already. For each £1,000 you pay in to your pension (£800 net) each year, you could pay around £90 extra in student loan repayments.

After 30 years, any and all remaining debt is wiped

You stop owing either when you've cleared the debt, or when 30 years (from the April after graduation) have passed, whichever comes first. If you never get a job earning over the threshold, it means you won't have repaid a penny.

It's one reason those who are near retirement, who don't have a degree and want one, find it very appealing as unless they've a huge pension, they know they'll never have to repay.

The debt is also wiped if you die, so it won't be passed onto your beneficiaries as part of your estate. It's also wiped if you're permanently disabled in such a way that you'll be permanently unfit to work (in such a case, earnings will usually be under the threshold anyway, but this rule's there for rare cases where unearned income is above the threshold to allow the recipient to keep it all).

Many people earning over £25,725 will never pay it all back within the 30 years

By running the numbers on some typical situations using our Student Finance Calculator, it looks likely only those towards the higher end of the income scale will ever repay all of what they borrowed, plus the interest (see later for info on that).

In this case, what you borrow is irrelevant – you'll just keep paying each month until it wipes after 30 years. This is one reason why all the talk of £50,000 is nonsense for most.

The following table should help you see roughly who's likely to pay the loan off, and what the total cost will be. As inflation and students' future income are both unpredictable, we've had to make some assumptions. This table should be seen as an indication of scale rather than anything more exact.

Before you look at the table

Please be aware it's designed to give a VERY rough indication of who's likely to pay the loan off. We've been forced to make many assumptions about inflation, earnings growth and graduates' earning growth, small changes which have a big impact. So please use this as a guide only.

(i) Assumes student loan repayment threshold goes up in line with our assumption of average wages increase.

How much will you repay at today's prices?

Borrowing £9,250 for fees & £8,430 living costs per year, so £53,040 in total With 3% inflation & graduate earnings growing at inflation + 2% per year.

STARTING SALARY (AUG 2017)

SALARY IN 30 YEARS AT TODAY'S PRICES

TOTAL REPAID AT TODAY'S PRICES

WILL I FULLY REPAY IT?

£10,000

£

Nothing (i)

£15,000

£

Nothing (i)

£20,000

£

£150

£21,000

£

£1,010

£25,000

£

£10,340

£30,000

£

£28,220

£35,000

£

£46,270

£40,000

£

£64,270

£45,000

£

£82,300

£50,000

£

£94,020

(i) Assumes student loan repayment threshold goes up in line with our assumption of average wages increase.

Figures based on the following assumptions:

Interest is accrued daily and applied monthly.

Inflation will be 3% each year (Bank of England statistics show inflation for 2000-2010 to be 2.7% and we have rounded it up).

Graduate salary increase will be RPI + 2% (based on ONS figures 2000 – 2010). This factors in some of an individual's potential pay increases, through promotions or skills as they get older or more experienced. This differs from overall average earnings increase, which is across the whole population regardless of age.

Tuition Loan and Maintenance Loan are £9,250 and £8,200 respectively.

Employment will be gained from Sep 2020, but repayments start April 2021.

And the following facts:

Debt grows by inflation plus 3% until April 2019.

Debt increases annually by RPI plus 0.00015% for every £1 you earn above £21,000. From April 2021, this £25,000 threshold begins to increase.

The repayment threshold is £25,000 in 2018/19 after which it will rise by average earnings growth (we assume this to be RPI+1% per annum).

No debt collectors with student loans

All student loans since 1998 have been repaid through the payroll just like income tax. What this means is that once you're working, your employer will deduct the repayments from your salary before you get it. So the amount you receive in your bank account each month already has it removed.

This means no debt collectors will come chasing as you don't have a choice in the matter and will have paid it automatically.

You always repay the student loan in the same way as you repay income tax.

For the self-employed, this is done via HMRC's self-assessment scheme. At the end of each tax year, you calculate your earnings and the appropriate amount of tax and loan repayments, and then send it to HM Revenue & Customs. This also applies if you have additional self-employed earnings on top of employment.

If you're self-employed and fail to pay, the SLC will try to get in touch with you. Ignore that, and it will send debt collectors your way, and you could eventually end up in court. More information is available for graduates on the Student Loans Company website.

'Above-inflation' interest will be charged

Until 2012 there was no 'real' cost to borrowing money via student loans, as the interest rate was set at the rate of inflation (RPI). So, borrow a shopping trolley worth of goods and you'll repay enough to buy the same, even though the actual cash amount may increase (more on this in the Should I Repay My Student Loan? guide).

Yet for everyone who started university since the major changes in 2012 that's all changed. The interest is as follows:

While studying:

Accrues RPI inflation plus 3% on the outstanding balance. This continues until the first April after graduation when it changes to…

After studying, earning under £25,725:

Accrues RPI inflation.

After studying, earning £25,725 – £46,305:

The interest rate will gradually rise from RPI to RPI plus 3% the more you earn (the interest rises 0.00015% for every extra pound you earn or, put another way, if you earn £1,000 more, you accrue 0.15% extra interest). These thresholds are frozen until 2021, but could rise with average earnings after.

After studying, earning over £46,305:

Accrues RPI inflation plus 3%.

It's worth noting all the above scenarios assume inflation is positive (prices rising). It's not yet known what would happen in a period of deflation (prices falling).

The rate you pay changes each September, and uses the previous March's RPI inflation rate. March 2018's RPI inflation rate was 3.3% meaning current interest charged on student loans is between 3.3% and 6.3% depending on whether you're studying or graduated, and how much you earn.

As March 2019's RPI inflation rate was 2.4%, interest charged from Sept 2019 will be between 2.4% and 5.4%

Student loans are interest free for many

I'm no fan of the fact that students aren't just being charged for their education, they also pay for financing it with above inflation interest.

Yet that's a principled stance. Being charged interest isn't the same as needing to repay it. In practical terms for lots of graduates especially those who never become high earners, they'll never end up repaying any interest, so it's meaningless. See my Student loans are interest free for many blog.

Part-timers and post-grads can get loans for tuition fees too

Part-time students, often forgotten, make up 40% of all undergraduates. Fees start at around £4,500 with a maximum of £6,935 in 2019/20.

Yet since 2012, for the first time, part-time students studying at least 25% of a full-time course have been eligible for tuition fee Student Loans Company loans on exactly the same basis as full-time students.

And now, if your course starts on or after 1 August 2018, you are also eligible for maintenance loans or grants as well - although students over 60 don't qualify.

Postgraduate students

New master's students can apply for a Master's loan from the Student Loans Company to pay for their courses. These only need repaying if they earn enough once the course ends. Students starting from August 2019 can apply for up to £10,906.

New students studying on a doctoral level are eligible to apply for the Doctoral loan. Like the Master's loan, it only needs to be repaid if they earn above the threshold. Students starting from August 2019 can apply for up to £25,000.

You can borrow for living costs too, but be warned – this is all about your parents

Full-time students at the start of their course can also take a loan to pay for their living costs, eg, food, books, accommodation and travel. They are known as maintenance loans, and are usually paid in three termly instalments direct to the student's bank account.

The loan is repaid in exactly the same way as the loan for tuition fees (ie, 9% of everything earned above £25,725).

Yet not all is quite as it seems here. This is because the living loan is means tested, and the means tested proportion has increased over recent years from a third to over a half. For almost every student under 25, this means test is based on household income, which in practice means parents’ income.

Rather watch than read?

This helpful little video gives you the lowdown on the parental contribution...

The reduction starts with total family incomes of just £25,000 and is usually halved for those with earnings of around £61,000. However, it's worth noting that if you're eligible for benefits, there's one or more financial dependants in your household, or you've applied for supplementary support, your parents' income's assessed in a different way. Full information's available in the How you're assessed and paid guide.

Here's how it works in practice, for students starting their course in 2019/20:

Living at home: The minimum you can get is £3,314 of the maximum £7,529. The difference between what you get and the maximum, in this case £4,215, is the expected parental contribution.

Living away from home, outside London: The minimum you can get is £4,168 of the maximum £8,944. The remaining £4,776 is the expected parental contribution.

Living away from home and studying in London: The minimum you can get is £5,812 of the maximum £11,672. The remaining £5,860 is the expected parental contribution.

Though the maintenance loan is based on parents’ earnings, and there is an implicit expectation they’ll contribute financially, the Government refuses to call it that, and I’ve campaigned hard to make it transparent see my (letter to Government). To help you work out what parents need to contribute, I’ve made it simple for you.

We've put together a table using the Student finance calculator at Gov.uk showing how much your parents'll be expected to contribute at different income levels (though these are suggested – you can't force them to pay). The amounts differ depending on where you are living. The amounts below are for the 2019/20 academic year.

Of course, knowing what the parental contribution is doesn’t mean parents can afford to pay it. Yet, at least it lets you understand what amount is expected, and helps students and parents have an open dialogue on it.

Maintenance loans now available for the over 60s

It used to be these loans were only available to the under 60s. But since 2016/17, over 60s are able to apply for loans for living costs too, if they're studying full-time. The maximum loan for living costs in 2019/20 for all full-time students aged 60 or over is £3,783.

My biggest problem is the loan isn't big enough

While most media outlets like to focus on the headline figure of £50,000 – in real terms the main issue most students face is that the loan isn't big enough. The amount of money to live off can barely cover accommodation fees in some circumstances.

Therefore, it's crucial to ensure there is a real focus on budgeting, and you don't spend the cash the first few weeks of term. Part-time jobs, any grants, extra cash from parents will all help. See Student MoneySaving tips for more on how to make the cash stretch further.

How much maintenance loan you get is dependent on your parents’ pre-tax income (minus some calculations, eg pension contributions and if they've another dependent child). If their combined earnings are above £25,000, they’re expected to help top up your maintenance loan.

One major flaw with this system is that it doesn’t take into account parents’ expenditure and ability to pay. It only reduces the amount of your household income it uses to assess your maintenance loan size by £1,130 if your parents have other dependants – which is trivial compared to the amount they might be paying out to support another child at university at the same time as you.

This mostly affects middle class parents, as students from low-income families will get the full loan. As I’ve explained in my Are student loans broken? guide, parents are going to have to save for their children to go to university, and many have no idea.

As a result, it’s likely that students who would’ve otherwise stayed on will be forced to leave their courses because they simply can’t afford them.

The only times you won’t be means tested for the maintenance loan is if you’re over 25 or if you’ve been supporting yourself for at least three years before you start university (for example if you’ve had a full-time job).

The short answer is: no. Parents can’t be forced to pay, regardless of whether that’s because they can’t afford to, or they just don’t want to. I said in my blog on expected parental contributions (see that for more in-depth info) that this creates an unfair situation for the student – either they should be treated independently or they should be able to make their parents pay up.

You can apply for independent status, which means your parents’ incomes won’t be taken into consideration, if you meet one of the following criteria:

You’re estranged from your parents, meaning you’ve not had verbal or written contact with them for over a year, and your relationship won’t improve in the foreseeable future.

You have supported yourself for at least 36 months (three years) before your course starts, although those months don’t have to be consecutive. You will need to show proof of your earnings and that you’ve made enough to support yourself.

You’ve been in local authority care for at least three months after your 16th birthday, you’re estranged from your parents and this won’t improve.

If you don’t know where your parents are, or it could be dangerous to contact them, or if your parent has a significant mental health or physical health issue that makes it impractical or dangerous for you to contact them.

If you’re at least 25 years old on the first day of your course, or you’re married or in a civil partnership or have been before but are now separated, or you have a child or dependent, or both of your parents have passed away.

You will need to provide evidence with your application, so make sure you read the charity Stand Alone's guidance carefully to avoid the risk of being rejected

Extra help, called Disabled Student Allowances (DSAs), is available for disabled students to cover costs you have due to a mental health problem, long-term illness or another disability. You get DSAs on top of your other student finance and you don’t need to pay it back.

How much you get depends on your individual needs and where you’re studying – it is not means tested. The available amounts are per term, except for specialist equipment figures, which cover the entire length of your course.

The below figures are available for full-time undergraduate students.

2019/20

England

Wales

Scotland

Northern Ireland

Non-medical helper

£22,603

£22,472

£20,520

£20,938

Specialist equipment

£5,684*

£5,657*

£5,160*

£5,266*

General allowance

£1,899

£1,894

£1,725

£1,759

You may also be able to get help with “reasonable costs” for travel (eg, if you have to take a taxi because your disability makes using public transport too difficult).

Postgraduate students can also get DSAs, again the amount varies between countries:

England: £20,000 per year (full-time, will be less if you're a part-time student).

Northern Ireland: £10,469 per year (available to both full-time and part-time students).

Scotland: £22,245 per year (full-time, part-time students need to meet certain criteria to be eligible), plus £5,160 to cover the entirety of your course.

Wales: £20,000 per year (full-time, will be less if you're part-time student).

These are maximum figures so you'll likely get less than this – and part-time students will get pro-rata amounts. But as students don’t get enough to cover living costs as it is, the DSAs can be a great extra help, so it’s worth applying if you’re eligible – especially as you don’t have to pay them back.

Wales offers a maintenance loan, but the terms are different from those who study in England.

You can choose to be income assessed when applying. If you do, then your household income (your income and your parents’ incomes, or your partner’s income if you live together) will determine what support you’ll get. If you don’t do an income assessment, you’ll only get basic support.

The maximum amount you can get depends on where you live, and your circumstances:

Living with your parents: a maximum of £7,840.

Living away from home, studying outside London: £9,225.

Living away from home, studying in London: £11,530.

The maximum levels are available regardless of your household income – however, this will determine how much of the full amount you’ll be given as a grant and how much you’ll be given as a loan.

For example, someone whose household income is £18,370 or less living at home could get £6,885 as a grant and £955 as a loan, totalling the maximum £7,840.

In contrast, someone from a home with a household income of £59,200 or more who’s also living at home could get £1,000 as a grant and £6,840 as a loan.

Grants were replaced by larger loans for 2016/17 starters and beyond

Maintenance grants have been scrapped for new students in England – however, they’re still available for those who started on their course before 1 August 2016. You do not have to pay the grant back but it will reduce how much maintenance loan you’ll get.

£6,120 or less: You can get up to £1,500 full-time or up to £750 part-time.

£6,121 to £12,235: You can get up to £750 full-time or up to £450 part-time.

£12,236 to 18,370: You can get up to £450 full-time or up to £300 part-time.

£18,371 or more: You're not eligible for a grant.

The special support grant (SSG) can help with up to £5,161 per year, but it has specific eligibility criteria that you need to meet, eg, being a single parent, over 60, disabled or entitled to certain benefits. You may be able to get some additional grant through the WGLG as well. Getting the SSG won’t affect how much maintenance loan you can get.

Northern Ireland offers two grants for students who are normally residents in Northern Ireland (meaning you didn’t move there just to study) and are doing a full-time higher education course – the Maintenance grant and the Special Support grant, but you’ll only get one or the other.

The grants are means tested, but you don’t need to pay them back.

Both grants offer the same amounts. How much you can get depends on your household income:

£19,203 or less: You can get up to £3,475.

£19,204 to £41,065: You may be eligible to a partial grant depending on household income.

£41,065 or more: You’re not eligible for a grant.

While the two grants offer the same level of support, there are some significant differences. The maintenance grant will affect how much you will get through your maintenance loan. The special support grant is only available to students fitting specific criteria:

Scotland offers three living costs grants that you don’t have to pay back if you’re a full-time student, however there are specific criteria you must meet to be eligible.

Dependants’ grant: Available to students who act as carers for their spouse, civil partner, partner or another adult dependant who’s not a student. It’s income assessed and your partners income will be taken into account. If eligible, you can get up to £2,640 per year.

Lone parents’ grant: If you’re single, divorced, widowed, separated or your partnership has dissolved, and you’re raising children on your own, you may be eligible for this grant. It pays up to £1,305 per year.

Care experienced accommodation grant: If you were previously in care and are under 26 when starting your course, you can get up to £105 per week towards accommodation costs over the summer holiday period.

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In practical terms, getting rid of the student grant will only affect high-earning graduates. That's because after leaving university, students repay 9% of everything they earn over £25,725 for a maximum of 30 years. Those who'd currently qualify for a full grant would only actually pay more if it was wiped, if they'd repay their entire tuition fee, remaining maintenance loan after the grant, and interest within the thirty years before the debt wipes.

A number crunch shows, as a rough rule of thumb, for a student living away from home, taking the full tuition fees, this is only for those on graduate starting salaries substantially above £30,000 who then get above inflation pay rises after that too. That is at the very high end of graduate earnings.

The real risk with ending grants is the fact larger loans can be a psychological deterrent, especially to those from non university backgrounds.

Student loans DO NOT go on credit files

When you borrow from a bank for a credit card, loan or mortgage, to evaluate whether they'll make money from you lenders look at three pieces of information – your application form, any previous dealings they've had with you and crucially, the information on your credit reference files (full info: How Credit Ratings Work).

Most normal financial transactions and credit relationships you have are listed on these files – yet student loans are not included (with the exception of students who started university before 1998 under the original loans system and defaulted).

So the only way loan, credit card or mortgage providers know if you've got a student loan is if they choose to ask on application forms. They can do this and it happens, but in general it's only for bigger value transactions such as mortgages.

Student debt can impact your ability to get a mortgage, but not as much as people think

I know many parents worry that now we have £9,250 tuition fees the subsequent 'debt', will hit their child's ability to get a mortgage after studying.

Of course, having a student loan is worse than not having one when it comes to getting a mortgage. Though going to university often results in earning a higher salary, which usually cancels this out.

Many worry about the "huge debt" putting lenders off, actually that isn't a problem, student loans don't appear on your credit file, so the impact isn't really about whether you'll be allowed a mortgage or not.

Where it does impact is in the affordability checks which establish whether you can afford to make repayments on a mortgage. Of course, as you have lower take-home income with a student loan, that means you'll be assessed as being able to make smaller repayments. For full help see First-Time Buyers Mortgage Guide.

The changes in 2012 had some benefits for those getting mortgages

Many parents' biggest fear was about the increase in tuition fees from £3,000 to £9,000 back in 2012. Yet actually in some ways the changes were an improvement.

While it's now a somewhat dated issue, it does merit a mention – and if you understand this explanation then it means you've nailed understanding the new system.

If we contrast student loans for those who start now with their 2011 predecessors, while the borrowing is bigger, the repayments are smaller. That's because recent starters pay 9% over £25,725, while those who started before pay 9% over £18,935.

That means the 2011 cohort lose more of their disposable income, making mortgages far less 'affordable'.

Yet the fact they repay more each month and have borrowed less mean they're likely to clear their debt much quicker, so once they've repaid it (typically after a decade or so), they then have a bigger disposable income. Thus all in all, for mortgage getting at least, the change was swings and roundabouts.

You can repay student loans early

In the early days, the Government was consulting on penalties to stop people repaying early – but the mass of feedback (including our no to penalties submission) was against – and thankfully it decided to scrap the idea.

Yet this doesn't mean you should pay off early, just because it's allowed. While in general we'd encourage people to repay their debts as quickly as possible, student loans are one of the rare cases where that will be a bad decision for some people.

This is because, as explained in point 18 below, under the new system many won't fully repay before the debt's wiped (after 30 years, use the Student Finance Calc to see). Overpaying each month could actually be peeing in the wind – as the overpayment's not reducing the amount you'd need to pay back at all.

Even if you've enough cash to clear the loan in full it may not be worth it as your repayments primarily depend on what you earn, not what you borrowed. It could mean you need to repay less than what you owed. To see how this concept works read the Beware paying Tuition Fees Upfront guide.

Beware paying tuition fees upfront, it could leave you £10,000s worse off

Many parents save up to avoid their children getting into 'debt'. Even more horrifically, some borrow money themselves so their children won't need student loans.

That's a petrifying thought, a student loan is the 'best' form of debt you'll ever get. The interest is relatively low and crucially you only need to repay it if you earn enough.

Yet even if you've got the savings anyway it can be very bad financial logic. Let's take a look...

An example:

Paul wants to study agricultural sciences. His parents decide they don't want him getting the tuition fee loan and shell out £27,000 of their hard earned cash to pay his tuition fees, and give him £20,000 to live off over three years.

He graduates and wonderfully decides to go and work for a charity based in Africa for 10 years, where he never earns over £25,725. Then he comes back, gets married and becomes a full-time parent of their three children.

They paid £48,000 for money Paul will never need to repay. In fact, they'd have been far better off to save the money towards a mortgage deposit for him, as that's a far more difficult task..

Of course, I've given you an extreme example, but if you are considering paying tuition fees up front, it can still be a waste of cash even for those who earn well over £25,725 after university. If you're considering this read my full Beware Paying Tuition Fees Up front guide, which takes you through the pros and cons.

Students from, or going to, Welsh, Scottish and Northern Irish unis may have different rules

Scottish, Welsh and Northern Irish students, including those who decide to study in England, receive their financial support from their "home" devolved administration so it's a matter for those governments to decide how they wish to support their students.

Scotland:

Scottish students studying in Scotland pay no tuition fees. English and Northern Irish students studying there will be charged up to £9,250 per year, as will Scottish students studying in England, Wales and Northern Ireland.

The very highest earners aren't the very highest payers

Throughout this guide, I've explained that the more you earn the more you repay. Yet a quirk of the system means technically, beyond a certain point, that's not true.

In truth, for the huge majority of people this isn't relevant, so feel free to skip this technical point, but I add it in for technical correctness and because from a political perspective it is worth examining.

This quirk happens because seriously high earners pay off so quickly they have less time to accrue interest. If we take a ludicrous example to prove the point, if someone earned a billion pounds in their first month of work, they'd have cleared the debt in one month, so no interest would've accrued.

Of course they still repay far more in total than low earners, but it does mean rather perversely that very very high earners repay less than high earners.

Try a wee experiment to see this. Go to the Student Finance Calculator and set it to the maximum tuition fees (£9,250 per year) and typical maintenance loan (£5,740 per year). Now use the salary slider to change the starting salary and (on standard assumptions of inflation and salary growth) you'll see at first the repayments rise. Then, after a starting salary of around £41,000, they start to fall.

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The student loan isn't a debt; if we changed its name to the more accurate 'graduate contribution' this mythbusting guide would be less needed

The name 'student loans' frightens people. They scare the risk averse, which tends to especially be those from non-traditional university backgrounds off going to university. They make parents do silly things like borrowing on their expensive mortgage so their child won't be 'in debt'.

Even worse it means many students have lost the fear of debt, and ended up taking out credit cards or payday loans – after all if the Government enforces you to 'borrow' what can be wrong with it.

Yet the truth is what we call a student loan isn't really a debt like any other, in fact it acts far more like a tax than a loan. After all...

It's repaid through the income tax system

You only repay it if you earn over a certain amount

The amount repaid increases with earnings

It does not go on credit files

Debt collectors will not chase for it

Bigger borrowing doesn't increase repayments

Many people will continue to repay for the majority of their working life

But in reality, it isn't a tax, it's more of a contributory contract; in effect, though, it's somewhere between the two.

Time to change the name

So if we're looking for a name for this hybrid form of finance, lets try the "contribution" as used in Australia. Below are a few key student loan facts where I've changed the word 'repay' for 'contribute' and suddenly they make more sense.

· You need only contribute if you earn enough (£25,000 in a year) once you graduate · Your contributions are taken via the payroll · The more financially successful you are, the more you will contribute in total - If you don't earn enough, you don't have to contribute - You only have to contribute for 30 years.

Suddenly this fear of debt looks ridiculous. Would a student say: "I'm not going to university, because if I'm a high earner afterwards they'll ask me for a contribution to my education." Of course not, they'd relish the financial success, and be assured that if they didn't do too well, they wouldn't contribute as much or even nothing at all.

The same is true of parents. Many say: "I'm worried my child will be £50,000 in debt when they leave university, I will do all I can to prevent it." However I've never heard anyone say "I'm worried my child will earn enough to be a higher-rate taxpayer after university, I'm saving up now to pay their tax for them."

Let's take this a step further, and put the 'contribution' within the model of income tax. Take a look at this table.

Equiv 'marginal' (1) tax rates for graduates under 2012+ system

Earnings up to £8,632

No tax - this is within your 'personal allowance', the amount earnable before income tax starts, and under the national insurance threshold

Earnings over £8,632 up to £12,500

12% national insurance

Earnings over £12,500 up to £25,725

32% tax and national insurance

Earnings over £25,725 up to £50,000

41% due to addition of student loan repayments

Earnings over £50,000 up to £150,000

51% due to addition of higher rate tax, but drop in national insurance (2)

Earnings above £150,000

56% due to higher rate tax (2)

(1) 'Marginal' means you only pay the specified tax rate on that portion of salary. For more, see the Tax Rates guide. (2) Earn above £100,000 and your personal allowance will also be affected.

Student loans should be counted as part of students' income

Many school leavers go straight to university with their parents or grandparents yelling "STICK TO A BUDGET!" Yet that simply isn't enough info. Think about this for a moment:

A working person shouldn't spend more than they EARN.

What shouldn't a full-time student spend more than?

It's this piece of the budgeting jigsaw many people miss, but it's crucial – without knowing your income, you can't budget.

I'd define a student's income as: the student loan, any grant, any income from working and any money given by parents or relatives.

Total that up, and this is what you should budget not to spend more than.

It's important to note while this does include the student loan, it doesn't include 0% overdrafts, which at best should be seen as an aid to cash flow but not income (see Best Student Accounts guide) or any other commercial debt.

Offered a fee waiver or bursary? Go for the bursary

Those coming from homes with lower incomes, or with less traditional university backgrounds, are likely to be offered incentives by universities. The exact structure and money is likely to be given in one of three ways, but should be worth up to £3,000:

Fee waiver

Here you are given a reduction each year on your tuition fees, meaning the loan you need is less.

Bursary

This is some form of cash or gift in kind. It could range from a £1,000 grant or help with living arrangements, depending on your situation.

Scholarship

Similar to a bursary, it is usually a form of cash or gift in kind. Getting one depends on academic ability (usually A-level grades) rather than income.

Many organisations, including universities and colleges, offer additional funding to help students in particular circumstances. Sometimes this is to broaden the range of entrants to higher education and sometimes it aims to encourage applications from high achieving students.

Each organisation will have its own priorities for the students it wants to assist. So the following categories will vary depending on where and what is being studied. Students need to research what support is on offer both in their local area, subject area, and at the universities they are applying to.

Bursaries

A bursary is a grant that does not need to be repaid. Bursaries are usually paid by universities to help with costs associated with study: books and equipment, childcare, and travel are typical examples. Eligibility is usually determined by household income, or other personal circumstances, eg, those with children or those leaving care. Availability and how much you receive will vary at different universities.

Scholarships

A scholarship does not have to be repaid. Scholarships are usually paid in recognition of educational achievement and can help towards the costs of fees or other course costs and may also provide living cost support. Availability and how much you receive will vary at different universities.

Fee waiver/fee discount

This is paid to cover some (via a discount), or all (via a waiver) of your tuition fees. You will not usually receive a payment directly when you are awarded a fee waiver/discount. It reduces the amount of tuition fees you are required to pay and does not have to be paid back.

Therefore, in real terms, unless you earn a higher salary on graduation the fee waiver is unlikely to reduce the amount you repay at all. So while it may feel like your fee and debt are lower, there is no material impact on your pocket.

Yet a bursary will provide definitive cash now, which is a boon and could reduce the need for any commercial borrowing. So as one is a certain gain, and the other a 'you may benefit in the future but might not', the choice is a no-brainer.

To get really advanced (feel free to ignore this) for those who are sure they'll be on very big salaries there is an advantage to taking the fee waiver as it reduces the interest paid. Yet this is marginal at best over taking cash now, as inflation reduces the impact due to money being worth more now than later.

It is interesting to note that while worse for you, fee waivers are far better for the Treasury. As the money comes from the university, it decreases the amount the Government has to loan out.

Universities that charge over £6,000 must use some of the excess funds over that amount to help improve access to university. The money comes from two sources...

The Access Programme – widening participation

Institutions that charge fees above £6,000 are also obliged to put some of the excess charge (works out at an average of around 25%) into access agreement schemes to widen participation for students from under-represented groups.

This money will be given to students from low household incomes who come from under-represented groups, ie, those most able but least likely to apply.

Warning. This is how it works now – sadly it can be changed – even retrospectively

So now you understand it, the obvious question is, "how fixed is all this?"

The Government has already announced it's selling off the remaining £40bn of student loan debt it has – a concern to many of the over four million uni leavers since 1998 with outstanding loans. In itself that can't change the terms and structures of the way the loans work, but it can change operating practices which may be a pain in the neck for some.

Yet, it's important to understand Parliament is omnicompetent. In other words, it's completely free to make and change rules made in the past. This means there is no 100% guarantee the system will remain unchanged for the 30 years until you're clear. It's worth being aware this is a risk factor.

In the past it has always been thought that retrospective changes to the system go against natural justice and it hasn't happened – after all each time a new student finance system has been introduced, it has only applied to new starters.

Yet that sacred trust was breached in November 2015 – the Government froze the repayment threshold for all those who started in 2012 and beyond. The threshold had meant to be increased. This effectively hiked the cost of student loans above what people had thought they would be when they started university. That shouldn't happen. No commercial firm would be allowed to do so.

However, the student loan repayment threshold was increased from £21,000 to £25,000 in April 2018 as part of a wide-ranging review of student finance, and increased yet again to £25,725 in April 2019. Tuition fees are frozen at £9,250, but may rise in 2020.

Yet, the Government still refuses to enshrine many elements of student loan rates into statute – meaning it can change rates without a vote in the House of Commons.

This is a very worrying situation as it means it is difficult to trust the system. Yet unfortunately if you want to go to university you've no choice.

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